PRO-CONSCIENCE [LOGO]
WOMEN'S EQUITY MUTUAL FUND
Advancing gender equality in the workplace
PROSPECTUS
JULY 30, 1999
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PRO-CONSCIENCE WOMEN'S EQUITY MUTUAL FUND,
A SERIES OF PROFESSIONALLY MANAGED PORTFOLIOS
The Pro-Conscience Women's Equity Mutual Fund is a mutual fund that seeks
to provide long-term capital appreciation by investing primarily in equity
securities. The Fund invests in securities of companies that satisfy certain
social responsibility criteria and that are proactive toward women's social and
economic equality.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION DOES NOT
APPROVE OR DISAPPROVE OF THESE SHARES OR DETERMINE WHETHER THE INFORMATION IN
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. IT IS A CRIMINAL OFFENSE FOR ANYONE TO
INFORM YOU OTHERWISE.
THE DATE OF THIS PROSPECTUS IS JULY 30, 1999
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TABLE OF CONTENTS
An Overview of the Fund..................................................... 3
Performance................................................................. 4
Fees and Expenses........................................................... 5
Investment Objective and Principal Investment Strategies.................... 6
Principal Risks of Investing in the Fund.................................... 7
Management of the Fund...................................................... 7
Shareholder Information..................................................... 8
Pricing of Fund Shares...................................................... 12
Dividends and Distributions................................................. 12
Tax Consequences............................................................ 12
Rule 12b-1 Fees............................................................. 13
Financial Highlights........................................................ 14
2
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AN OVERVIEW OF THE FUND
THE FUND'S INVESTMENT GOAL
The Fund seeks to provide long-term capital appreciation by investing primarily
in equity securities.
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Fund primarily invests in common stocks of companies that satisfy certain
social responsibility criteria and that are proactive toward women's social and
economic equality. In selecting investments, the Advisor and Sub-Advisor attempt
to identify which market sectors are likely to achieve attractive returns
consistent with preservation of the Fund's assets. The Fund seeks to purchase
individual securities within each industry sector that have sound competitive
positions and strategies that meet the Fund's criteria for social
responsibility.
PRINCIPAL RISKS OF INVESTING IN THE FUND
There is the risk that you could lose money on your investment in the Fund. The
following risks could affect the value of your investment:
* The stock market goes down
* Interest rates go up which can result in a decline in the equity market
* Stocks in the Fund's portfolio may not increase their earnings at the rate
anticipated
* The Fund's social policy could cause it to underperform similar funds that
do not have a social policy
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for investors who:
* Want an equity investment in companies that are sensitive to issues
affecting women
* Are pursuing a long-term goal such as retirement
* Are willing to accept higher short-term risk along with higher potential
for long-term growth of capital
The Fund may not be appropriate for investors who:
* Need regular income or stability of principal
* Are pursuing a short-term goal
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PERFORMANCE
The following performance information indicates some of the risks of
investing in the Fund. The bar chart shows how the Fund's total return has
varied from year to year. The table shows the Fund's average return over time
compared with a broad-based market index. This past performance will not
necessarily continue in the future.
CALENDAR YEAR TOTAL RETURNS (%)*
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
-0.05% 16.96% 14.49% 25.58% 28.77%
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* The Fund's year-to-date return as of 6/30/99 was 10.69%.
During the period shown in the bar chart, the Fund's highest quarterly return
was 22.18% for the quarter ended December 31, 1998 and the lowest quarterly
return was -11.02% for the quarter ended September 30, 1998.
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
Since Inception
1 Year 5 Years (10/1/93)
------ ------- ---------------
Pro-Conscience Women's
Equity Mutual Fund 28.77% 17.24% 16.64%
S&P 500 Index* 28.58% 24.06% 23.18%
- ----------
* The S&P 500 Index is an unmanaged index generally representative of the
market for the stocks of large-sized U.S. companies.
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FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases........................ None
Maximum deferred sales charge (load).................................... None
ANNUAL FUND OPERATING EXPENSES*
(expenses that are deducted from Fund assets)
Management Fees......................................................... 1.00%
Distribution and Service (12b-1) Fees................................... 0.25%
Other Expenses.......................................................... 1.45%
-----
Total Annual Fund Operating Expenses.................................... 2.70%
Fee Reduction and/or Expense Reimbursement.............................. (1.20)%
-----
Net Expenses............................................................ 1.50%
-----
- ----------
* The Advisor has contractually agreed to reduce its fees and/or pay expenses
of the Fund for an indefinite period to ensure the Total Fund Operating
Expenses will not exceed the net expense amount shown. The Advisor reserves
the right to be reimbursed for any waiver of its fees or expenses paid on
behalf of the Fund if the Fund's expenses are less than the limit agreed to
by the Fund. The Trustees may terminate this expense reimbursement
arrangement at any time.
EXAMPLE
This Example is intended to help you compare the costs of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. The Example was calculated using net
operating expenses. Although your actual costs may be higher or lower, under the
assumptions, your costs would be:
One Year.................................... $ 153
Three Years................................. $ 474
Five Years.................................. $ 818
Ten Years................................... $1,741
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INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The goal of the Fund is to provide long-term capital appreciation by
investing primarily in equity securities.
The Fund emphasizes the purchase of common stocks of companies that satisfy
certain social responsibility criteria and that are proactive toward women's
social and economic equality. Under normal market conditions, at least 65% of
the Fund's total assets will be invested in equity securities of companies
believed to have these characteristics.
The security selection process begins with an analysis of equity market
sectors. The Advisor and Sub-Advisor seek to determine which sectors are
expected to produce the greatest returns while controlling portfolio risk. This
analysis includes the likely outcomes for inflation, profits, employment, the
dollar and economic variables, together with the prices of stocks in various
sectors.
Within each industry sector, individual stock selection is based upon
analysis of the company's fundamental characteristics including financial
strength, response to industry and economy-wide changes and price and cost
trends. The Fund seeks to purchase companies with sound competitive positions
and strategies. The Fund emphasizes companies with above-average earnings
growth, sustained profitability, and above-average return on invested capital.
Company management is also evaluated based on policies toward women's
social and economic equality. The Advisor and the Sub-Advisor look for companies
that exhibit some or all of the following socially responsible characteristics:
* promote women to top executive positions and compensate them accordingly
* have a high percentage of women directors on the board
* have strong support from senior executives for workplace equality
* provide career development and training programs for women employees
including mentoring and company-sponsored women's networking groups
* monitor hiring and promotion activity closely
* offer programs addressing work/family concerns
* use women-owned companies as vendors and service providers
* present positive images of women in their advertising, promotion and
marketing
* are accountable to employees, investors and the communities in which it
operates
Companies that exhibit some or all of the following characteristics are
also considered:
* sensitive to minority issues
* exhibit fair employee relations
* provide high quality products or services
* sensitive to environmental concerns
The following characteristics are viewed negatively when selecting
potential investments:
* has a pattern of Equal Employment Opportunity Act violations
* promotes sexist stereotypes in the workplace or in their advertising
* markets products that adversely affect women
* unwillingness to engage in dialogue concerning women's issues
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A decision to sell all or part of a portfolio holding will be made for one
or more of the following reasons: company fundamentals no longer meet the
Advisor and Sub-Advisor's investment criteria, a decision has been reached to
reduce allocation to an industry or economic sector or the Advisor and
Sub-Advisor's valuation parameters have been exceeded.
The Fund anticipates that it will have a low rate of portfolio turnover.
This means that the Fund has the potential to be a tax efficient investment.
This should result in the realization and the distribution to shareholders of
lower capital gains, which would be considered tax efficient. This anticipated
lack of frequent trading also leads to lower transaction costs, which could help
to improve performance.
Under normal market conditions, the Fund will stay fully invested in
stocks. However, the Fund may temporarily depart from its principal investment
strategies by making short-term investments in cash equivalents in response to
adverse market, economic or political conditions. This may result in the Fund
not achieving its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The principal risks of investing in the Fund that may adversely affect the
Fund's net asset value or total return are summarized above in "Principal risks
of investing in the Fund." These risks are discussed in more detail below.
MARKET RISK. The risk that the market value of a security may move up and
down, sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than the price originally paid for it, or less than it
was worth at an earlier time. Market risk may affect a single issuer, industry,
sector of the economy or the market as a whole.
SOCIAL POLICY RISK. The Fund's social policy could cause it to underperform
similar funds that do not have a social policy. Among the reasons for this are
(a) stocks that meet the Fund's social criteria could underperform those stocks
that do not meet this criteria; and (b) a company's social policy could cause
the Fund to sell or not purchase stocks that subsequently perform well.
YEAR 2000 RISK. The risk that the Fund could be adversely affected if the
computer systems used by the Advisor and Sub-Advisor and other service providers
do not properly process and calculate information related to dates beginning
January 1, 2000. This is commonly known as the "Year 2000 Problem." This
situation may negatively affect the companies in which the Fund invests and by
extension the value of the Fund's shares. Although the Fund's service providers
are taking steps to address this issue, there may still be some risk of adverse
effects.
MANAGEMENT OF THE FUND
THE ADVISOR
Pro-Conscience Funds Incorporated, founded in 1993, is the investment
advisor to the Fund. The Advisor's address is 625 Market Street, 16th Floor, San
Francisco CA 94105. The Advisor develops the Fund's investment policy, including
guidelines and social criteria for screening companies for their policies on
behalf of women, and oversees the management of the Fund's investments. The
Advisor also furnishes the Fund with office space and certain administrative
services and provides most of the personnel needed by the Fund. For its
services, the Fund
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pays the Advisor a monthly management fee based upon its average daily net
assets. For the fiscal year ended March 31, 1999, the Advisor waived all
advisory fees due from the Fund.
THE SUB-ADVISOR
United States Trust Company of Boston is the Sub-Advisor to the Fund. The
Sub-Advisor's address is 40 Court Street, Boston, MA 02108. The Sub-Advisor is a
Massachusetts-chartered banking and trust company and is a wholly-owned
subsidiary of UST Corporation, a Massachusetts bank holding company. Neither the
Sub-Advisor nor UST Corporation is affiliated with United States Trust Company
of New York. The Trust Department of the Sub-Advisor has managed funds as a
fiduciary since 1895. The Sub-Advisor has approximately $3.5 billion of assets
under management.
The Sub-Advisor is recognized as one of the premier firms in the business
of managing investment portfolios subject to socially responsive investment
criteria. Together with the Advisor, the Sub-Advisor, is responsible for
providing the social screening for the Fund's portfolio, as well as formulating
and implementing the Fund's investment program. For its services, the Advisor
pays the Sub-Advisor a monthly sub-advisory fee based upon the Fund's average
daily net assets. For the fiscal year ended March 31, 1999, the Sub-Advisor
received from the Advisor sub-advisory fees of 0.08% of the Fund's average net
assets.
PORTFOLIO MANAGERS
Heidi Soumerai, Vice President of the Sub-Advisor, and William Apfel,
Senior Vice President of the Sub-Advisor, are the Fund's Co-Portfolio Managers.
Ms. Soumerai is Director of Social Research and oversees the activities of the
team of social research analysts who analyze corporate social responsibility
issues and engage in a variety of social change activities. She is a Chartered
Financial Analyst and has been associated with the Sub-Advisor since 1985. Mr.
Apfel is a Chartered Financial Analyst and has been associated with the
Sub-Advisor since 1989. He is a Chairperson of the Sub-Advisor's Securities
Research Committee, Director of Securities Research and Co-Chair of the
Sub-Advisor's Portfolio Composition Committee.
FUND EXPENSES
The Fund is responsible for its own operating expenses. The Advisor has
contractually agreed to reduce its fees and/or pay expenses of the Fund to
ensure that the Fund's aggregate annual operating expenses (excluding interest
and tax expenses) will not exceed 1.50% of the Fund's average daily net assets.
Any reduction in advisory fees or payment of expenses made by the Advisor are
subject to reimbursement by the Fund if requested by the Advisor in subsequent
fiscal years. This reimbursement may be requested by the Advisor if the
aggregate amount actually paid by the Fund toward operating expenses for such
fiscal year (taking into account the reimbursement) does not exceed the
applicable limitation on Fund expenses. The Advisor is permitted to be
reimbursed for fee reductions and/or expense payments made in the prior three
fiscal years. Any such reimbursement will be reviewed by the Trustees. The Fund
must pay its current ordinary operating expenses before the Advisor is entitled
to any reimbursement of fees and/or expenses.
SHAREHOLDER INFORMATION
HOW TO BUY SHARES
You may open a Fund account with $1,000 and add to your account at any
time with $100 or more. You may open a retirement plan account with $500 and add
to you account at any time with $100 or more. After you
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have opened a Fund account, you also may make automatic subsequent monthly
investments with $50 or more through the Automatic Investment Plan. The minimum
investment requirements may be waived from time to time by the Fund.
You may purchase shares of the Fund by check or wire. Shares are purchased
at the net asset value next determined after the Transfer Agent receives your
order in proper form as discussed in this Prospectus. All purchases by check
must be in U.S. dollars. Third party checks and cash will not be accepted. A
charge may be imposed if your check does not clear. The Fund is not required to
issue share certificates. The Fund reserves the right to reject any purchase in
whole or in part.
BY CHECK
If you are making an initial investment in the Fund, simply complete the
Application Form included with this Prospectus and mail it with a check (made
payable to "Pro-Conscience Women's Equity Mutual Fund") to:
Pro-Conscience Women's Equity Mutual Fund
P.O. Box 640856
Cincinnati, OH 45264-0856
If you wish to send your Application Form and check via an overnight
delivery service (such as FedEx), you should call the Transfer Agent at (800)
282-2340 for instructions.
If you are making a subsequent purchase, a stub is attached to the account
statement you will receive after each transaction. Detach the stub from the
statement and mail it together with a check made payable to "Pro-Conscience
Women's Equity Mutual Fund" to the Fund in the envelope provided with your
statement or to the address noted above. Your account number should be written
on the check.
BY WIRE
If you are making an initial investment in the Fund, before you wire funds
you should call the Transfer Agent at (800) 282-2340 between 9:00 a.m. and 4:00
p.m., Eastern time, on a day when the New York Stock Exchange ("NYSE") is open
to advise them that you are making an investment by wire. The Transfer Agent
will ask for your name and the dollar amount you are investing. You will then
receive your account number and an order confirmation number. You should then
complete the Account Application included with this Prospectus. Include the date
and the order confirmation number on the Account Application and mail the
completed Account Application to the address at the top of the Account
Application. Your bank should transmit immediately available funds by wire in
your name to:
Firstar Bank, N.A. Cinti/Trust
ABA Routing #0420-0001-3
Pro-Conscience Women's Equity Mutual Fund
DDA #483898037
Account name (shareholder name)
Shareholder account number
If you are making a subsequent purchase, your bank should wire funds as
indicated above. Before each wire purchase, you should be sure to notify the
Transfer Agent. IT IS ESSENTIAL THAT YOUR BANK INCLUDE COMPLETE
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INFORMATION ABOUT YOUR ACCOUNT IN ALL WIRE INSTRUCTIONS. If you have questions
about how to invest by wire, you may call the Transfer Agent. Your bank may
charge you a fee for sending a wire to the Fund.
You may buy and sell shares of the Fund through certain brokers (and their
agents) that have made arrangements with the Fund to sell its shares. When you
place your order with such a broker or its authorized agent, your order is
treated as if you had placed it directly with the Fund's Transfer Agent, and you
will pay or receive the next price calculated by the Fund. The broker (or agent)
holds your shares in an omnibus account in the broker's (or agent's) name, and
the broker (or agent) maintains your individual ownership records. The Fund may
pay the broker (or its agent) for maintaining these records as well as providing
other shareholder services. The broker (or its agent) may charge you a fee for
handling your order. The broker (or agent) is responsible for processing your
order correctly and promptly, keeping you advised regarding the status of your
individual account, confirming your transactions and ensuring that you receive
copies of the Fund's prospectus.
AUTOMATIC INVESTMENT PLAN
For your convenience, the Fund offers an Automatic Investment Plan. Under
this Plan, after your initial investment, you authorize the Fund to withdraw
from your personal checking account each month an amount that you wish to
invest, which must be at least $50. If you wish to enroll in this Plan, complete
the appropriate section in the Account Application. The Fund may terminate or
modify this privilege at any time. You may terminate your participation in the
Plan at any time by notifying the Transfer Agent in writing.
RETIREMENT PLANS
The Fund offers an Individual Retirement Account ("IRA") plan. You may
obtain information about opening an IRA account by calling (800) 282-2340. If
you wish to open a Keogh, Section 403(b) or other retirement plan, please
contact your securities dealer.
HOW TO SELL SHARES
You may sell (redeem) your Fund shares on any day the Fund and the NYSE are
open for business either directly to the Fund or through your investment
representative.
You may redeem your shares by simply sending a written request to the
Transfer Agent. You should give your account number and state whether you want
all or some of your shares redeemed. The letter should be signed by all of the
shareholders whose names appear in the account registration. You should send
your redemption request to:
Pro-Conscience Women's Equity Mutual Fund
P.O. Box 5536
Hauppauge, NY 11788-0132
To protect the Fund and its shareholders, a signature guarantee is required
for all written redemption requests. Signature(s) on the redemption request must
be guaranteed by an "eligible guarantor institution." These include banks,
broker-dealers, credit unions and savings institutions. A broker-dealer
guaranteeing signatures must be a member of a clearing corporation or maintain
net capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted from any eligible
guarantor institution which participates in a signature guarantee program. A
notary public is not an acceptable guarantor.
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If you complete the Redemption by Telephone portion of the Account
Application, you may redeem all or some of your shares by calling the Transfer
Agent at (800) 282-2340 before 4:00 p.m., Eastern time, on any business day the
NYSE is open for trading. Redemption proceeds will be mailed on the next
business day to the address that appears on the Transfer Agent's records. If you
request, redemption proceeds will be wired on the next business day to the bank
account you designated on the Account Application. The minimum amount that may
be wired is $1,000. Wire charges, if any, will be deducted from your redemption
proceeds. Telephone redemptions cannot be made if you notify the Transfer Agent
of a change of address within 30 days before the redemption request. If you have
a retirement account, you may not redeem shares by telephone.
When you establish telephone privileges, you are authorizing the Fund and
its Transfer Agent to act upon the telephone instructions of the person or
persons you have designated in your Account Application. Redemption proceeds
will be transferred to the bank account you have designated on your Account
Application.
Before executing an instruction received by telephone, the Fund and the
Transfer Agent will use reasonable procedures to confirm that the telephone
instructions are genuine. These procedures will include recording the telephone
call and asking the caller for a form of personal identification. If the Fund
and the Transfer Agent follow these reasonable procedures, they will not be
liable for any loss, expense, or cost arising out of any telephone redemption
request that is reasonably believed to be genuine. This includes any fraudulent
or unauthorized request. The Fund may change, modify or terminate these
privileges at any time upon at least 60 days' notice to shareholders.
You may request telephone redemption privileges after your account is
opened by calling the Transfer Agent at (800) 282-2340 for instructions.
You may have difficulties in making a telephone redemption during periods
of abnormal market activity. If this occurs, you may make your redemption
request in writing.
Payment of your redemption proceeds will be made promptly, but not later
than seven days after the receipt of your written request in proper form as
discussed in this Prospectus. If you made your initial investment by wire,
payment of your redemption proceeds for those shares will not be made until one
business day after your completed Account Application is received by the Fund.
If you did not purchase your shares with a certified check or wire, the Fund may
delay payment of your redemption proceeds for up to 15 days from date of
purchase or until your check has cleared, whichever occurs first.
The Fund may redeem the shares in your account if the value of your account
is less than $1,000 as a result of redemptions you have made. This does not
apply to retirement plan or Uniform Gifts or Transfers to Minors Act accounts.
You will be notified that the value of your account is less than $1,000 before
the Fund makes an involuntary redemption. You will then have 30 days in which to
make an additional investment to bring the value of your account to at least
$1,000 before the Fund takes any action.
The Fund has the right to pay redemption proceeds to you in whole or in
part by a distribution of securities from the Fund's portfolio. It is not
expected that the Fund would do so except in unusual circumstances. If the Fund
pays your redemption proceeds by a distribution of securities, you could incur
brokerage or other charges in converting the securities to cash.
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SYSTEMATIC WITHDRAWAL PROGRAM
As another convenience, you may redeem your Fund shares through the
Systematic Withdrawal Program. If you elect this method of redemption, the Fund
will send you a check in a minimum amount of $100. You may choose to receive a
check each month or calendar quarter. Your Fund account must have a value of at
least $10,000 in order to participate in this Program. This Program may be
terminated at any time by the Fund. You may also elect to terminate your
participation in this Program at any time by writing to the Transfer Agent.
A withdrawal under the Program involves a redemption of shares and may
result in a gain or loss for federal income tax purposes. In addition, if the
amount withdrawn exceeds the dividends credited to your account, the account
ultimately may be depleted.
PRICING OF FUND SHARES
The price of the Fund's shares is based on the Fund's net asset value. This
is done by dividing the Fund's assets, minus its liabilities, by the number of
shares outstanding. The Fund's assets are the market value of securities held in
its portfolio, plus any cash and other assets. The Fund's liabilities are fees
and expenses owed by the Fund. The number of Fund shares outstanding is the
amount of shares which have been issued to shareholders. The price you will pay
to buy Fund shares or the amount you will receive when you sell your Fund shares
is based on the net asset value next calculated after your order is received by
the Transfer Agent with complete information and meeting all the requirements
discussed in this Prospectus.
The net asset value of the Fund's shares is determined as of the close of
regular trading on the NYSE. This is normally 4:00 p.m., Eastern time. Fund
shares will not be priced on days that the NYSE is closed for trading (including
certain U.S. holidays).
DIVIDENDS AND DISTRIBUTIONS
The Fund will make distributions of dividends and capital gains, if any, at
least annually, typically after year end. The Fund will make another
distribution of any additional undistributed capital gains earned during the
12-month period ended October 31 on or about December 31.
All distributions will be reinvested in Fund shares unless you choose one
of the following options: (1) receive dividends in cash while reinvesting
capital gain distributions in additional Fund shares; or (2) receive all
distributions in cash. If you wish to change your distribution option, write to
the Transfer Agent in advance of the payment date for the distribution.
TAX CONSEQUENCES
The Fund intends to make distributions of dividends and capital gains.
Dividends are taxable to you as ordinary income. The rate you pay on capital
gain distributions will depend on how long the Fund held the securities that
generated the gains, not on how long you owned your Fund shares. You will be
taxed in the same manner whether you receive your dividends and capital gain
distributions in cash or reinvest them in additional Fund shares.
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If you sell your Fund shares, it is considered a taxable event for you.
Depending on the purchase price and the sale price of the shares you sell, you
may have a gain or a loss on the transaction. You are responsible for any tax
liabilities generated by your transaction.
RULE 12b-1 FEES
The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940. This rule allows the Fund to pay distribution
fees for the sale and distribution of its shares and for services provided to
its shareholders. The annual distribution and service fee is 0.25% of the Fund's
average daily net assets which is payable to the Advisor, as Distribution
Coordinator. Because these fees are paid out of the Fund's assets on an on-going
basis, over time these fees will increase the cost of your investment in Fund
shares and may cost you more than paying other types of sales charges.
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FINANCIAL HIGHLIGHTS
This table shows the Fund's financial performance for the past five years.
"Total return" shows how much your investment in the Fund would have increased
or decreased during each period, assuming you had reinvested all dividends and
distributions. This information has been audited by Tait, Weller & Baker,
independent accountants. Their report and the Fund's financial statements are
included in the Annual Report, which is available upon request.
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year......... $18.07 $12.10 $11.22 $ 9.93 $10.46
------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss)............. (0.06) (0.04) (0.01) 0.01 0.36
Net realized and unrealized gain
(loss) on investments.................. 2.65 6.16 0.90 1.59 (0.28)
------ ------ ------ ------ ------
Total from investment operations........... 2.59 6.12 0.89 1.60 0.08
------ ------ ------ ------ ------
Less distributions:
From net investment income............... 0.00 0.00 (0.01) (0.31) (0.02)
From net capital gains................... (0.80) (0.15) 0.00 0.00 (0.59)
------ ------ ------ ------ ------
Total distributions........................ (0.80) (0.15) (0.01) (0.31) (0.61)
------ ------ ------ ------ ------
Net asset value, end of year............... $19.86 $18.07 $12.10 $11.22 $9.93
====== ====== ====== ====== =====
Total return............................... 14.50% 50.77% 7.92% 16.17% 0.97%
Ratios/supplemental data:
Net assets, end of year (millions)......... $ 9.8 $7.0 $4.4 $3.3 $1.5
Ratio of expenses to average net assets:
Before expense reimbursement and waiver.. 2.70% 3.12% 4.09% 4.75% 8.69%
After expense reimbursement and waiver... 1.50% 1.50% 1.50% 1.50% 1.50%
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement or waiver... (1.60)% (1.88)% (2.64)% (1.97)% (1.97)%
After expense reimbursement and waiver... (0.40)% (0.26)% (0.05)% 1.28% 5.22%
Portfolio turnover rate.................... 16.36% 27.21% 51.13% 120.64% 705.88%
</TABLE>
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PRO-CONSCIENCE WOMEN'S
EQUITY MUTUAL FUND,
A SERIES OF PROFESSIONALLY MANAGED
PORTFOLIOS (THE "TRUST")
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated by reference into this
Prospectus.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Fund by contacting the Fund at:
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
Telephone: 1-800-282-2340
You can review and copy information including the Fund's reports and SAI at the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. You can obtain information on the operation of the Public Reference Room by
calling 1-800-SEC-0330. You can get text-only copies:
* For a fee, by writing to the Public Reference Room of the Commission,
Washington, DC 20549-6009, or
* For a fee, by calling 1-800-SEC-0330, or
* Free of charge from the Commission's Internet website at
http://www.sec.gov.
(The Trust's SEC Investment Company Act
file number is 811-5037)
<PAGE>
ADVISOR
Pro-Conscience Funds, Inc.
625 Market Street, 16th Floor
San Francisco, California 94105
(415) 547-9135
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DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261E
Phoenix, Arizona 85018
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CUSTODIAN
Firstar Institutional Custody Services
425 Walnut Street
Cincinnati, Ohio 45202
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TRANSFER AGENT
American Data Services, Inc.
P.O. Box 5536
Hauppauge, New York 11788
(800) 282-2340
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AUDITORS
Tait, Weller & Baker
8 Penn Center, Suite 800
Philadelphia, Pennsylvania 19103
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LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, California 94104
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JULY 30,1999
PRO-CONSCIENCE WOMEN'S EQUITY MUTUAL FUND,
A SERIES OF
PROFESSIONALLY MANAGED PORTFOLIOS
625 MARKET STREET, 16TH FLOOR
SAN FRANCISCO, CA 94025
(415) 547-9135
(800) 282-2340
This Statement of Additional Information ("SAI") is not a prospectus and it
should be read in conjunction with the Prospectus dated July 30, 1999, as may be
revised, of the Pro-Conscience Women's Equity Mutual Fund (the "Fund"), a series
of Professionally Managed Portfolios (the "Trust"). Pro-Conscience Funds
Incorporated (the "Advisor") is the advisor to the Fund. United States Trust
Company of Boston (the "Sub-Advisor") is the sub-advisor to the Fund. A copy of
the Fund's Prospectus is available by calling either of the numbers listed
above.
TABLE OF CONTENTS
The Trust ................................................................ B-2
Investment Objective and Policies ........................................ B-2
Investment Restrictions .................................................. B-9
Distributions and Tax Information ........................................ B-10
Trustees and Executive Officers .......................................... B-13
The Fund's Investment Advisor ............................................ B-14
The Fund's Administrator ................................................. B-15
The Fund's Distributor ................................................... B-16
Execution of Portfolio Transactions ...................................... B-17
Portfolio Turnover ....................................................... B-19
Additional Purchase and Redemption Information ........................... B-19
Determination of Share Price ............................................. B-22
Performance Information .................................................. B-22
General Information ...................................................... B-23
Financial Statements ..................................................... B-25
Appendix A ............................................................... B-25
Appendix B ............................................................... B-27
B-1
<PAGE>
THE TRUST
Professionally Managed Portfolios (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust. The Trust may
consist of various series which represent separate investment portfolios. This
SAI relates only to the Fund.
The Trust is registered with the SEC as a management investment company.
Such a registration does not involve supervision of the management or policies
of the Fund. The Prospectus of the Fund and this SAI omit certain of the
information contained in the Registration Statement filed with the SEC. Copies
of such information may be obtained from the SEC upon payment of the prescribed
fee.
INVESTMENT OBJECTIVE AND POLICIES
The Pro-Conscience Women's Equity Mutual Fund is a mutual fund with the
investment objective of providing long-term capital appreciation by investing
primarily in equity securities. The Fund is diversified, which under applicable
federal law means that as to 75% of its total assets, no more than 5% may be
invested in the securities of a single issuer and it may hold no more than 10%
of the voting securities of any issuer. The following discussion supplements the
discussion of the Fund's investment objective and policies as set forth in the
Prospectus. There can be no assurance the objective of the Fund will be
attained.
PREFERRED STOCK
The Fund may invest in preferred stocks. A preferred stock is a blend of
the characteristics of a bond and common stock. It can offer the higher yield of
a bond and has priority over common stock in equity ownership, but does not have
the seniority of a bond and, unlike common stock, its participation in the
issuer's growth may be limited. Preferred stock has preference over common stock
in the receipt of dividends and in any residual assets after payment to
creditors should the issuer be dissolved. Although the dividend is set at a
fixed annual rate, in some circumstances it can be changed or omitted by the
issuer.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. Under such agreements, the
seller of the security agrees to repurchase it at a mutually agreed upon time
and price. The repurchase price may be higher than the purchase price, the
difference being income to the Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Fund together with the
repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the U.S. Government security itself. Such
repurchase agreements will be made only with banks with assets of $500 million
or more that are insured by the Federal Deposit Insurance Corporation or with
Government securities dealers recognized by the Federal Reserve Board and
registered as broker-dealers with the Securities and Exchange Commission ("SEC")
or exempt from such registration. The Fund will generally enter into repurchase
agreements of short durations, from overnight to one week, although the
underlying securities generally have longer maturities. The Fund may not enter
B-2
<PAGE>
into a repurchase agreement with more than seven days to maturity if, as a
result, more than 15% of the value of its net assets would be invested in
illiquid securities including such repurchase agreements.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
U.S. Government security subject to the repurchase agreement. It is not clear
whether a court would consider the U.S. Government security acquired by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S. Government security before its repurchase under a repurchase
agreement, the Fund may encounter delays and incur costs before being able to
sell the security. Delays may involve loss of interest or a decline in price of
the U.S. Government security. If a court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the U.S. Government
security, the Fund may be required to return the security to the seller's estate
and be treated as an unsecured creditor of the seller. As an unsecured creditor,
the Fund would be at the risk of losing some or all of the principal and income
involved in the transaction. As with any unsecured debt instrument purchased for
the Fund, the Advisor seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the other party, in this case
the seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security. However, the Fund
will always receive as collateral for any repurchase agreement to which it is a
party securities acceptable to it, the market value of which is equal to at
least 100% of the amount invested by the Fund plus accrued interest, and the
Fund will make payment against such securities only upon physical delivery or
evidence of book entry transfer to the account of its Custodian. If the market
value of the U.S. Government security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the U.S. Government security to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement will equal or exceed the repurchase price. It is possible that the
Fund will be unsuccessful in seeking to impose on the seller a contractual
obligation to deliver additional securities.
FIXED-INCOME SECURITIES
Although equity securities are the primary focus for the Fund, the Advisor
may also purchase fixed-income securities for the Fund's portfolio in pursuing
its investment goal. Bond investments made by the Fund normally are those which
are considered investment grade, including bonds which are direct or indirect
obligations of the U.S. government, or which at the date of investment are rated
BBB or better by Standard & Poor's Ratings Group ("S&P") or Baa or better by
Moody's Investors Service, Inc. ("Moody's) or of comparable quality as
determined by the Fund. Bonds rated Baa or BBB are considered medium-grade
obligations with speculative characteristics and are more susceptible to
changing market conditions.
Ratings of debt securities represent the rating agencies' opinions
regarding their quality, are not a guarantee of quality and may be reduced after
B-3
<PAGE>
the Fund has acquired the security. If a security's rating is reduced while it
is held by the Fund, the Advisor will consider whether the Fund should continue
to hold the security but is not required to dispose of it. Credit ratings
attempt to evaluate the safety of principal and interest payments and do not
evaluate the risks of fluctuations in market value. Also, rating agencies may
fail to make timely changes in credit ratings in response to subsequent events,
so that an issuer's current financial conditions may be better or worse than the
rating indicates. The ratings for debt securities are described in Appendix A.
U.S. Government securities in which the Fund may invest include direct
obligations issued by the U.S. Treasury, such as Treasury bills, certificates of
indebtedness, notes and bonds. U.S. Government agencies and instrumentalities
that issue or guarantee securities include, but are not limited to, the Federal
Housing Administration, Federal National Mortgage Association, Federal Home Loan
Banks, Government National Mortgage Association, International Bank for
Reconstruction and Development and Student Loan Marketing Association.
All Treasury securities are backed by the full faith and credit of the
United States. Obligations of U.S. Government agencies and instrumentalities may
or may not be supported by the full faith and credit of the United States. Some,
such as the Federal Home Loan Banks, are backed by the right of the agency or
instrumentality to borrow from the Treasury. Others, such as securities issued
by the Federal National Mortgage Association, are supported only by the credit
of the instrumentality and not by the Treasury. If the securities are not backed
by the full faith and credit of the United States, the owner of the securities
must look principally to the agency issuing the obligation for repayment and may
not be able to assert a claim against United States in the event that the agency
or instrumentality does not meet its commitment.
Among the U.S. Government securities that may be purchased by the Fund are
"mortgage-backed securities" of the Government National Mortgage Association
("Ginnie Mae"), the Federal Home Loan Mortgage Association ("Freddie Mac") and
the Federal National Mortgage Association ("Fannie Mae"). These mortgage-backed
securities include "pass-through" securities and "participation certificates,"
both of which represent pools of mortgages that are assembled, with interests
sold in the pool. Payments of principal (including prepayments) and interest by
individual mortgagors are "passed through" to the holders of interests in the
pool; thus each payment to holders may contain varying amounts of principal and
interest. Prepayments of the mortgages underlying these securities may result in
the Fund's inability to reinvest the principal at comparable yields.
Mortgage-backed securities also include "collateralized mortgage obligations,"
which are similar to conventional bonds in that they have fixed maturities and
interest rates and are secured by groups of individual mortgages. Timely payment
of principal and interest on Ginnie Mae pass-throughs is guaranteed by the full
faith and credit of the United States. Freddie Mac and Fannie Mae are both
instrumentalities of the U.S. Government, but their obligations are not backed
by the full faith and credit of the United States.
WHEN-ISSUED SECURITIES
The Fund may from time to time purchase securities on a "when-issued"
basis. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
B-4
<PAGE>
for them take place at a later date. Normally, the settlement date occurs within
one month of the purchase; during the period between purchase and settlement, no
payment is made by the Fund to the issuer and no interest accrues to the Fund.
To the extent that assets of the Fund are held in cash pending the settlement of
a purchase of securities, the Fund would earn no income; however, it is the
Fund's intention to be fully invested to the extent practicable and subject to
the policies stated above. While when-issued securities may be sold prior to the
settlement date, the Fund intends to purchase them with the purpose of actually
acquiring them unless a sale appears desirable for investment reasons. At the
time the Fund makes the commitment to purchase a security on a when-issued
basis, it will record the transaction and reflect the value of the security in
determining its net asset value. The market value of the when-issued securities
may be more or less than the purchase price. The Fund does not believe that its
net asset value or income will be adversely affected by its purchase of
securities on a when-issued basis. The Fund's Custodian will segregate liquid
assets equal in value to commitments for when-issued securities. Such segregated
assets either will mature or, if necessary, be sold on or before the settlement
date.
ILLIQUID SECURITIES
The Fund may not invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid. The Advisor will monitor the amount of
illiquid securities in the Fund's portfolio, under the supervision of the
Trust's Board of Trustees, to ensure compliance with the Fund's investment
restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to sell restricted or other illiquid securities promptly or at reasonable prices
and might thereby experience difficulty satisfying redemption requests within
seven days. The Fund might also have to register such restricted securities in
order to sell them, resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not reflect the actual liquidity of such
investments. These securities might be adversely affected if qualified
institutional buyers were unwilling to purchase such securities. If such
securities are subject to purchase by institutional buyers in accordance with
B-5
<PAGE>
Rule 144A promulgated by the SEC under the Securities Act, the Trust's Board of
Trustees may determine that such securities are not illiquid securities despite
their legal or contractual restrictions on resale. In all other cases, however,
securities subject to restrictions on resale will be deemed illiquid.
FOREIGN SECURITIES
The Fund may invest up to 20% of its assets in securities of foreign
issuers. The Fund may also invest without limit in securities of foreign issuers
which are listed and traded on a domestic national securities exchange.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. Among the
means through which the Fund may invest in foreign securities is the purchase of
American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs").
Generally, ADRs, in registered form, are denominated in U.S. dollars and are
designed for use in the U.S. securities markets, while EDRs, in bearer form, may
be denominated in other currencies and are designed for use in European
securities markets. ADRs are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying securities. EDRs are European
receipts evidencing a similar arrangement. For purposes of the Fund's investment
policies, ADRs and EDRs are deemed to have the same classification as the
underlying securities they represent. Thus, an ADR or EDR representing ownership
of common stock will be treated as common stock.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign securities
involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and diversification and balance of
payments position. The internal politics of some foreign countries may not be as
stable as those of the United States. Governments in some foreign countries also
continue to participate to a significant degree, through ownership interest or
regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are affected by the
trade policies and economic conditions of their trading partners. If these
trading partners enacted protectionist trade legislation, it could have a
significant adverse effect upon the securities markets of such countries.
CURRENCY FLUCTUATIONS. The Fund may invest in securities denominated in
foreign currencies. A change in the value of any such currency against the U.S.
dollar will result in a corresponding change in the U.S. dollar value of the
Fund's assets denominated in that currency. Such changes will also affect the
Fund's income. The value of the Fund's assets may also be affected significantly
by currency restrictions and exchange control regulations enacted from time to
time.
EURO CONVERSION. Several European countries adopted a single uniform
currency known as the "euro," effective January 1, 1999. The euro conversion,
B-6
<PAGE>
that will take place over a several-year period, could have potential adverse
effects on the Fund's ability to value its portfolio holdings in foreign
securities, and could increase the costs associated with the Fund's operations.
The Fund and the Advisor are working with providers of services to the Fund in
the areas of clearance and settlement of trade to avoid any material impact on
the Fund due to the euro conversion; there can be no assurance, however, that
the steps taken will be sufficient to avoid any adverse impact on the Fund.
MARKET CHARACTERISTICS. The Advisor expects that many foreign securities in
which the Fund invests will be purchased in over-the-counter markets or on
exchanges located in the countries in which the principal offices of the issuers
of the various securities are located, if that is the best available market.
Foreign exchanges and markets may be more volatile than those in the United
States. While growing, they usually have substantially less volume than U.S.
markets, and the Fund's foreign securities may be less liquid and more volatile
than U.S. securities. Also, settlement practices for transactions in foreign
markets may differ from those in United States markets, and may include delays
beyond periods customary in the United States. Foreign security trading
practices, including those involving securities settlement where Fund assets may
be released prior to receipt of payment or securities, may expose the Fund to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer.
LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
TAXES. The interest and dividends payable on some of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to Fund shareholders.
COSTS. To the extent that the Fund invests in foreign securities, its
expense ratio is likely to be higher than those of investment companies
investing only in domestic securities, since the cost of maintaining the custody
of foreign securities is higher.
CURRENCY CONTRACTS AND RELATED OPTIONS
To the extent consistent with its investment objective and policies
relating to investment in foreign securities, the Fund is authorized to engage
in currency exchange transactions by means of buying and selling foreign
currency on a spot basis, entering into foreign currency forward contracts,
buying and selling currency options, futures and options on futures to the
extent of up to 5% of its assets. The Fund has no present intention to do so.
These transactions involve certain risks. For example, there are
significant differences between the securities markets and options, futures or
currency contract markets that could result in an imperfect correlation between
these markets, causing a given transaction not to achieve its objectives. A
decision as to whether, when and how to use these transactions involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
B-7
<PAGE>
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an options, futures or currency contract position. The
variable degree of correlation between price movements of options, futures or
currency contracts and price movements in the related portfolio positions of the
Fund creates the possibility that losses on these transactions may be greater
than gains in the value of the Fund's position. Also, options, futures and
currency contract markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction at all or might incur a
loss. Although the use of these transactions is intended to reduce the risk of
loss due to a decline in the value of the Fund's underlying position, at the
same time they tend to limit any potential gain which might result from an
increase in the value of such position. If losses were to result from the use of
such transactions, they could reduce net asset value and possibly income. If the
Fund determines to make use of these transactions to the limited degree set
forth above, the Fund will observe the federal and other regulatory requirements
pertaining to such transactions and will segregate liquid assets (or, as
permitted by applicable regulation, enter into certain offsetting positions) to
cover its obligations under such transactions to avoid leveraging of the Fund.
SHORT-TERM INVESTMENTS
The Fund may invest in any of the following securities and instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The Fund
may hold certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic banks, savings and loan associations
or financial institutions which, at the time of purchase, have capital, surplus
and undivided profits in excess of $100 million (including assets of both
domestic and foreign branches), based on latest published reports, or less than
$100 million if the principal amount of such bank obligations are fully insured
by the U.S. Government.
In addition to buying certificates of deposit and bankers' acceptances, the
Fund also may make interest-bearing time or other interest-bearing deposits in
commercial or savings banks. Time deposits are non-negotiable deposits
maintained at a banking institution for a specified period of time at a
specified interest rate.
COMMERCIAL PAPER AND SHORT-TERM NOTES. The Fund may invest a portion of its
assets in commercial paper and short-term notes. Commercial paper consists of
unsecured promissory notes issued by corporations. Commercial paper and
short-term notes will normally have maturities of less than nine months and
fixed rates of return, although such instruments may have maturities of up to
one year.
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<PAGE>
Commercial paper and short-term notes will consist of issues rated at the
time of purchase "A-2" or higher by S&P, "Prime-1" or "Prime-2" by Moody's, or
similarly rated by another nationally recognized statistical rating organization
or, if unrated, will be determined by the Advisor to be of comparable quality.
These rating symbols are described in Appendix B.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by the
Fund and (unless otherwise noted) are fundamental and cannot be changed without
the affirmative vote of a majority of the Fund's outstanding voting securities
as defined in the 1940 Act. The Fund may not:
1. Make loans to others, except (a) through the purchase of debt securities
in accordance with its investment objectives and policies, (b) to the extent the
entry into a repurchase agreement is deemed to be a loan.
2. (a) Borrow money, except as stated in the Prospectus and this Statement
of Additional Information. Any such borrowing will be made only if immediately
thereafter there is an asset coverage of at least 300% of all borrowings.
(b) Mortgage, pledge or hypothecate any of its assets except in
connection with any such borrowings.
3. Purchase securities on margin, participate on a joint or joint and
several basis in any securities trading account, or underwrite securities. (Does
not preclude the Fund from obtaining such short-term credit as may be necessary
for the clearance of purchases and sales of its portfolio securities.)
4. Purchase or sell commodities or commodity contracts (other than futures
transactions for the purposes and under the conditions described in the
prospectus and in this Statement of Additional Information).
5. Invest 25% or more of the market value of its assets in the securities
of companies engaged in any one industry. (Does not apply to investment in the
securities of the U.S. Government, its agencies or instrumentalities.)
6. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges, or (b) entering into options,
futures, currency contract or repurchase transactions.
7. Purchase the securities of any issuer, if as a result more than 5% of
the total assets of the Fund would be invested in the securities of that issuer,
other than obligations of the U.S. Government, its agencies or
instrumentalities, provided that up to 25% of the value of the Fund's assets may
be invested without regard to this limitation.
B-9
<PAGE>
8. Purchase or sell real estate; however, the Fund may invest in debt
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein, including real estate
investment trusts.
The Fund observes the following policies, which are not deemed fundamental
and which may be changed without shareholder vote. The Fund may not:
9. Purchase any security if as a result the Fund would then hold more than
10% of any class of securities of an issuer (taking all common stock issues of
an issuer as a single class, all preferred stock issues as a single class, and
all debt issues as a single class) or more than 10% of the outstanding voting
securities of an issuer.
10. Invest in any issuer for purposes of exercising control or management.
11. Invest in securities of other investment companies which would result
in the Fund owning more than 3% of the outstanding voting securities of any one
such investment company, the Fund owning securities of another investment
company having an aggregate value in excess of 5% of the value of the Fund's
total assets, or the Fund owning securities of investment companies in the
aggregate which would exceed 10% of the value of the Fund's total assets.
12. Invest, in the aggregate, more than 15% of its net assets in securities
which are not readily marketable or are illiquid.
13. With respect to fundamental investment restriction 2(a) above, the Fund
will not purchase portfolio securities while outstanding borrowings exceed 5% of
its assets.
If a percentage restriction described in the Prospectus or in this SAI is
adhered to at the time of investment, a subsequent increase or decrease in a
percentage resulting from a change in the values of assets will not constitute a
violation of that restriction, except with respect to borrowing or the purchase
of restricted or illiquid securities.
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
Dividends from net investment income and distributions from net profits
from the sale of securities are generally made annually. Also, the Fund expects
to distribute any undistributed net investment income on or about December 31 of
each year. Any net capital gains realized through the period ended October 31 of
each year will also be distributed by December 31 of each year.
Each distribution by the Fund is accompanied by a brief explanation of the
form and character of the distribution. In January of each year the Fund will
issue to each shareholder a statement of the federal income tax status of all
distributions.
B-10
<PAGE>
TAX INFORMATION
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund intends to continue to qualify and elect to be treated as
a "regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986 (the "Code"), provided that it complies with all applicable requirements
regarding the source of its income, diversification of its assets and timing of
distributions. It is the Fund's policy to distribute to its shareholders all of
its investment company taxable income and any net realized capital gains for
each fiscal year in a manner that complies with the distribution requirements of
the Code, so that the Fund will not be subject to any federal income tax or
excise taxes based on net income. To avoid the excise tax, the Fund must also
distribute (or be deemed to have distributed) by December 31 of each calendar
year (i) at least 98% of its ordinary income for such year, (ii) at least 98% of
the excess of its realized capital gains over its realized capital losses for
the one-year period ending on October 31 during such year and (iii) any amounts
from the prior calendar year that were not distributed and on which the Fund
paid no federal excise tax.
The Fund's ordinary income generally consists of interest and dividend
income, less expenses. Net realized capital gains for a fiscal period are
computed by taking into account any capital loss carryforward of the Fund.
The Fund may purchase and write certain options, futures and foreign
currency. Such transactions are subject to special tax rules that may affect the
amount, timing, and character of distributions to shareholders. For example,
such contracts that are "Section 1256 contracts" will be "marked-to-market" for
Federal income tax purposes at the end of each taxable year (i.e., each contract
will be treated as sold for its fair market value on the last day of the taxable
year). In general, unless certain special elections are made, gain or loss from
transactions in such contracts will be 60% long term and 40% short-term capital
gain or loss. Section 1092 of the Code, which applies to certain "straddles,"
may also affect the taxation of the Fund's transactions in options, futures, and
foreign currency contracts. Under Section 1092 of the Code, the Fund may be
required to postpone recognition for tax purposes of losses incurred in certain
of such transactions.
Distributions of net investment income and net short-term capital gains are
taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Portfolio designates the amount
distributed as a qualifying dividend. This designated amount cannot, however,
exceed the aggregate amount of qualifying dividends received by the Portfolio
for its taxable year. The deduction, if any, may be reduced or eliminated if
Portfolio shares held by a corporate investor are treated as debt-financed or
are held for fewer than 46 days.
Any long-term capital gain distributions are taxable to shareholders as
long-term capital gains regardless of the length of time they have held their
shares. Capital gains distributions are not eligible for the dividends-received
deduction referred to in the previous paragraph. Distributions of any ordinary
income and net realized capital gains will be taxable as described above,
whether received in shares or in cash. Shareholders who choose to receive
distributions in the form of additional shares will have a cost basis for
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federal income tax purposes in each share so received equal to the net asset
value of a share on the reinvestment date. Distributions are generally taxable
when received. However, distributions declared in October, November or December
to shareholders of record on a date in such a month and paid the following
January are taxable as if received on December 31. Distributions are includable
in alternative minimum taxable income in computing a shareholder's liability for
the alternative minimum tax.
Under the Code, the Fund will be required to report to the Internal Revenue
Service all distributions of ordinary income and capital gains as well as gross
proceeds from the redemption of Portfolio shares, except in the case of exempt
shareholders, which includes most corporations. Pursuant to the backup
withholding provisions of the Code, distributions of any taxable income and
capital gains and proceeds from the redemption of Fund shares may be subject to
withholding of federal income tax at the current maximum federal tax rate of 31
percent in the case of non-exempt shareholders who fail to furnish the Fund with
their taxpayer identification numbers and with required certifications regarding
their status under the federal income tax law. If the backup withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in additional shares, will be reduced by the amounts required
to be withheld. Corporate and other exempt shareholders should provide the Fund
with their taxpayer identification numbers or certify their exempt status in
order to avoid possible erroneous application of backup withholding. The Fund
reserves the right to refuse to open an account for any person failing to
certify the person's taxpayer identification number.
The Fund will not be subject to corporate income tax in the Commonwealth of
Massachusetts as long as its qualifies as regulated investment companies for
federal income tax purposes. Distributions and the transactions referred to in
the preceding paragraphs may be subject to state and local income taxes, and the
tax treatment thereof may differ from the federal income tax treatment.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
In addition, the foregoing discussion of tax law is based on existing
provisions of the Code, existing and proposed regulations thereunder, and
current administrative rulings and court decisions, all of which are subject to
change. Any such charges could affect the validity of this discussion. The
discussion also represents only a general summary of tax law and practice
currently applicable to the Fund and certain shareholders therein, and, as such,
is subject to change. In particular, the consequences of an investment in shares
of the Fund under the laws of any state, local or foreign taxing jurisdictions
are not discussed herein. Each prospective investor should consult his or her
own tax advisor to determine the application of the tax law and practice in his
or her own particular circumstances.
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TRUSTEES AND EXECUTIVE OFFICERS
The Trustees of the Trust, who were elected for an indefinite term by the
initial shareholders of the Trust, are responsible for the overall management of
the Trust, including general supervision and review of the investment activities
of the Fund. The Trustees, in turn, elect the officers of the Trust, who are
responsible for administering the day-to-day operations of the Trust and its
separate series. The current Trustees and officers, their affiliations, dates of
birth and principal occupations for the past five years are set forth below.
Unless noted otherwise, each person has held the position listed for a minimum
of five years.
Steven J. Paggioli,* 04/03/50 President and Trustee
915 Broadway, New York, New York 10010. Executive Vice President, The Wadsworth
Group (consultants); Executive Vice President of Investment Company
Administration, LLC ("ICA") (mutual fund administrator and the Trust's
administrator),and Vice President of First Fund Distributors, Inc. ("FFD") (a
registered broker-dealer and the Fund's Distributor).
Dorothy A. Berry, 08/12/43 Chairman and Trustee
14 Five Roses East, Ancram, NY 12502. President, Talon Industries (venture
capital and business consulting); formerly Chief Operating Officer, Integrated
Asset Management (investment advisor and manager) and formerly President, Value
Line, Inc., (investment advisory and financial publishing firm).
Wallace L. Cook 09/10/39 Trustee
One Peabody Lane, Darien, CT 06820. Retired. Formerly Senior Vice President,
Rockefeller Trust Co. Financial Counselor, Rockefeller & Co.
Carl A. Froebel 05/23 /38 Trustee
2 Crown Cove Lane, Savannah, GA 31411. Private Investor. Formerly Managing
Director, Premier Solutions, Ltd. (computer software); formerly President and
Founder, National Investor Data Services, Inc. (investment related computer
software).
Rowley W.P. Redington 06/01/44 Trustee
1191 Valley Road, Clifton, New Jersey 07103. President; Intertech (consumer
electronics and computer service and marketing); formerly Vice President, PRS of
New Jersey, Inc. (management consulting), and Chief Executive Officer, Rowley
Associates (consultants).
Robert M. Slotky* 6/17/47 Treasurer
2020 E. Financial Way, Suite 100, Glendora, California 91741. Senior Vice
President, ICA since May 1997; former instructor of accounting at California
State University-Northridge (1997); Chief Financial Officer, Wanger Asset
Management L.P. and Treasurer of Acorn Investment Trust (1992-1996).
Robin Berger* 11/17/56 Secretary
915 Broadway, New York, New York 10010. Vice President, The Wadsworth Group.
Robert H. Wadsworth* 01/25/40 Vice President
4455 E. Camelback Road, Suite 261E, Phoenix, Arizona 85018. President of The
Wadsworth Group, President of ICA and FFD.
*Indicates an "interested person" of the Trust as defined in the 1940 Act.
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Set forth below is the rate of compensation received by the following
Trustees from all portfolios of the Trust. This total amount is allocated among
the portfolios. Disinterested Trustees receive an annual retainer of $10,000 and
a fee of $2,500 for each regularly scheduled meeting. These Trustees also
receive a fee of $1,000 for any special meeting attended. The Chairman of the
Board of Trustees receives an additional annual retainer of $5,000.
Disinterested trustees are also reimbursed for expenses in connection with each
Board meeting attended. No other compensation or retirement benefits were
received by any Trustee from the portfolios of the Trust.
Name of Trustee Total Annual Compensation
- --------------- -------------------------
Dorothy A. Berry $25,000
Wallace L. Cook $20,000
Carl A. Froebel $20,000
Rowley W.P. Redington $20,000
During the fiscal year ended March 31, 1999, trustees' fees and expenses in
the amount of $3,998 were allocated to the Fund. As of the date of this SAI, the
Trustees and Officers of the Trust as a group did not own more than 1% of the
outstanding shares of the Fund.
THE FUND'S INVESTMENT ADVISOR
As stated in the Prospectus, investment advisory services are provided to
the Fund by Pro- Conscience Funds Incorporated, the Advisor, pursuant to an
Investment Advisory Agreement. (the "Advisory Agreement"). As compensation, the
Fund pays the Advisor a monthly management fee (accrued daily) based upon the
average daily net assets of the Fund at the annual rate of 1.00%.
The use of the name "Pro-Conscience" by the Fund is pursuant to a license
granted by the Advisor, and in the event the Advisory Agreement with the Fund is
terminated, the Advisor has reserved the right to require the Fund to remove any
references to the name "Pro-Conscience."
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<PAGE>
The Advisory Agreement continues in effect for successive annual periods so
long as such continuation is approved at least annually by the vote of (1) the
Board of Trustees of the Trust (or a majority of the outstanding shares of the
Fund, and (2) a majority of the Trustees who are not interested persons of any
party to the Advisory Agreement, in each case cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement may be
terminated at any time, without penalty, by either party to the Advisory
Agreement upon sixty days' written notice and is automatically terminated in the
event of its "assignment," as defined in the 1940 Act.
For the fiscal year ended March 31, 1999, the Advisor waived its advisory
fees in the amount of $80,905 and voluntarily reimbursed the Fund for expenses
in the amount of $12,652.
For the fiscal year ended March 31, 1998, the Advisor waived a portion of
its advisory fee and reimbursed the Fund for expenses in the total amount of
$89,230.
For the fiscal year ended March 31, 1997, the Advisor waived its advisory
fee and reimbursed the Fund for expenses in the total amount of $79,519.
SUB-ADVISOR
United States Trust Company of Boston is the Sub-Advisor to the Fund,
pursuant to a Sub-Advisory agreement approved by shareholders at a meeting held
on September 15, 1995. The Sub-Advisor, together with the Advisor, is
responsible for formulating and implementing the Fund's investment program.
The Sub-Advisory Agreement, after its initial term, continues in effect for
successive annual periods so long as such continuation is approved at least
annually by the vote of (1) the Board of Trustees of the Trust (or a majority of
the outstanding shares of the Fund), and (2) a majority of the Trustees who are
not interested persons of any party to the Sub-Advisory Agreement, in each case
cast in person at a meeting called for the purpose of voting on such approval.
The Sub-Advisory Agreement may be terminated at any time, without penalty, by
either party to the agreement upon sixty days' written notice and is
automatically terminated in the event of its "assignment," as defined in the
1940 Act.
For its services, the Sub-Advisor receives a Sub-Advisory fee from the
Advisor at the rate of 0.25% of the Fund's average net assets annually. The
Advisor is not obligated to pay the Sub- Advisor this fee until the net assets
of the Fund reach $8 million.
For the fiscal year ended March 31, 1999, the Sub-Advisor received fees
from the Advisor of $7,641. For the fiscal year ended March 31, 1998, the
Sub-Advisor did not receive fees because the Fund's assets had not reached $8
million.
THE FUND'S ADMINISTRATOR
The Fund has an Administration Agreement with Investment Company
Administration, LLC (the "Administrator"), a corporation owned and controlled by
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<PAGE>
Messrs. Banhazl, Paggioli and Wadsworth with offices at 4455 E. Camelback Rd.,
Ste. 261-E, Phoenix, AZ 85018. The Administration Agreement provides that the
Administrator will prepare and coordinate reports and other materials supplied
to the Trustees; prepare and/or supervise the preparation and filing of all
securities filings, periodic financial reports, prospectuses, statements of
additional information, marketing materials, tax returns, shareholder reports
and other regulatory reports or filings required of the Fund; prepare all
required notice filings necessary to maintain the Fund's ability to sell shares
in all states where the Fund currently does, or intends to do business;
coordinate the preparation, printing and mailing of all materials (e.g., Annual
Reports) required to be sent to shareholders; coordinate the preparation and
payment of Fund related expenses; monitor and oversee the activities of the
Fund's servicing agents (i.e., transfer agent, custodian, fund accountants,
etc.); review and adjust as necessary the Fund's daily expense accruals; and
perform such additional services as may be agreed upon by the Fund and the
Administrator. For its services, the Administrator receives a monthly fee at the
following annual rate:
Average Net Assets Fee or Fee Rate
- ------------------ ---------------
Under $15 million $30,000
$15 to $50 million 0.20%
$50 to $100 million 0.15%
$100 to $150 million 0.10%
Over $150 million 0.05%
For each of the fiscal years ended March 31, 1999 and 1998, the
Administrator received fees of $30,000. For the fiscal year ended March 31,
1997, the Administrator received a fee of $7,397, net of a waiver of $22,603.
THE FUND'S DISTRIBUTOR
First Fund Distributors, Inc. (the "Distributor"), a corporation owned by
Messrs. Banhazl, Paggioli and Wadsworth, acts as the Fund's principal
underwriter in a continuous public offering of the Fund's shares. The
Distribution Agreement between the Fund and the Distributor continues in effect
from year to year if approved at least annually by (i) the Board of Trustees or
the vote of a majority of the outstanding shares of the Fund (as defined in the
1940 Act) and (ii) a majority of the Trustees who are not interested persons of
any such party, in each case cast in person at a meeting called for the purpose
of voting on such approval. The Distribution Agreement may be terminated without
penalty by the parties thereto upon sixty days' written notice, and is
automatically terminated in the event of its assignment as defined in the 1940
Act.
DISTRIBUTION PLAN
At a meeting held on September 15, 1995, shareholders approved a
distribution plan pursuant to Rule 12b-1 under the Investment Company Act of
1940. The Plan provides that the Fund may pay distribution and related expenses
of up to 0.25% of the Fund's average net assets to the Advisor, as Distribution
Coordinator. Expenses permitted to be paid include preparation, printing and
mailing of prospectuses, shareholder reports such as semi-annual and annual
reports, performance reports and newsletters, sales literature and other
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<PAGE>
promotional material to prospective investors, direct mail solicitations,
advertising, public relations, compensation of sales personnel, advisors or
other third parties for their assistance with respect to the distribution of the
Fund's shares, payments to financial intermediaries for shareholder support,
administrative and accounting services with respect to shareholders of the Fund
and such other expenses as may be approved from time to time by the Board of
Trustees.
The Plan allows excess distribution expenses to be carried forward by the
Advisor, as Distribution Coordinator, and resubmitted in a subsequent fiscal
year, provided that (i) distribution expenses cannot be carried forward for more
than three years following initial submission; (ii) the Board of Trustees has
made a determination at the time of initial submission that the distribution
expenses are appropriate to be carried forward and (iii) the Trustees make a
further determination, at the time any distribution expenses which have been
carried forward are submitted for payment, that payment at the time is
appropriate, consistent with the objectives of the Plan and in the current best
interests of shareholders.
Under the Plan, the Trustees are furnished quarterly with information
detailing the amount of expenses paid under the plan and the purposes for which
payments were made. The Plan may be terminated at any time by vote of a majority
of the Trustees of the Trust who are not interested persons. Continuation of the
Plan is considered by such Trustees no less frequently than annually.
For the fiscal year ended March 31, 1999, the Fund paid fees pursuant to
the Plan of $19,549 to the Advisor, as Distribution Coordinator, of which $1,351
was for compensation to broker-dealers, $9,634 was for expenses related to
advertising and sales material and $8,564 related to Distributor printing
expenses.
For the year ended March 31, 1998, the Fund paid fees pursuant to the Plan
of $13,762 to the Advisor as Distribution Coordinator, of which $229 was for
selling compensation, $7,703 was for expenses related to advertising and sales
material, $2,442 was for reimbursement of travel and entertainment expenses and
$3,388 related to Distributor printing expenses.
EXECUTION OF PORTFOLIO TRANSACTIONS
Pursuant to the Advisory Agreement and Sub-Advisory Agreement, the Advisor
and Sub- Advisor determine which securities are to be purchased and sold by the
Fund and which broker-dealers are eligible to execute the Fund's portfolio
transactions. Purchases and sales of securities in the over-the-counter market
will generally be executed directly with a "market-maker" unless, in the opinion
of the Advisor and Sub-Advisor, a better price and execution can otherwise be
obtained by using a broker for the transaction.
Purchases of portfolio securities for the Fund also may be made directly
from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities which the Fund will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principal for their own accounts. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
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<PAGE>
include the spread between the bid and the asked price. If the execution and
price offered by more than one dealer or underwriter are comparable, the order
may be allocated to a dealer or underwriter that has provided research or other
services as discussed below.
In placing portfolio transactions, the Advisor and Sub-Advisor will use
their reasonable efforts to choose broker-dealers capable of providing the
services necessary to obtain the most favorable price and execution available.
The full range and quality of services available will be considered in making
these determinations, such as the size of the order, the difficulty of
execution, the operational facilities of the firm involved, the firm's risk in
positioning a block of securities, and other factors. In those instances where
it is reasonably determined that more than one broker-dealer can offer the
services needed to obtain the most favorable price and execution available,
consideration may be given to those broker-dealers which furnish or supply
research and statistical information to the Advisor or Sub-Advisor that they may
lawfully and appropriately use in their investment advisory capacities, as well
as provide other services in addition to execution services. The Advisor and
Sub-Advisor consider such information, which is in addition to and not in lieu
of the services required to be performed by them under their Agreements with the
Fund, to be useful in varying degrees, but of indeterminable value. Portfolio
transactions may be placed with broker-dealers who sell shares of the Fund
subject to rules adopted by the National Association of Securities Dealers, Inc.
While it is the Fund's general policy to seek first to obtain the most
favorable price and execution available in selecting a broker-dealer to execute
portfolio transactions for the Fund, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Fund or to the
Advisor or Sub-Advisor, even if the specific services are not directly useful to
the Fund and may be useful to the Advisor or Sub-Advisor in advising other
clients. In negotiating commissions with a broker or evaluating the spread to be
paid to a dealer, the Fund may therefore pay a higher commission or spread than
would be the case if no weight were given to the furnishing of these
supplemental services, provided that the amount of such commission or spread has
been determined in good faith by the Advisor and Sub-Advisor to be reasonable in
relation to the value of the brokerage and/or research services provided by such
broker-dealer. The standard of reasonableness is to be measured in light of the
Advisor's and Sub-Advisor's overall responsibilities to the Fund.
Investment decisions for the Fund are made independently from those of
other client accounts or mutual funds ("Funds") managed or advised by the
Advisor and Sub-Advisor. Nevertheless, it is possible that at times identical
securities will be acceptable for both the Fund and one or more of such client
accounts or Funds. In such event, the position of the Fund and such client
account(s) or Funds in the same issuer may vary and the length of time that each
may choose to hold its investment in the same issuer may likewise vary. However,
to the extent any of these client accounts or Funds seeks to acquire the same
security as the Fund at the same time, the Fund may not be able to acquire as
large a portion of such security as it desires, or it may have to pay a higher
price or obtain a lower yield for such security. Similarly, the Fund may not be
able to obtain as high a price for, or as large an execution of, an order to
sell any particular security at the same time. If one or more of such client
accounts or Funds simultaneously purchases or sells the same security that the
Fund is purchasing or selling, each day's transactions in such security will be
allocated between the Fund and all such client accounts or Funds in a manner
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<PAGE>
deemed equitable by the Advisor and Sub-Advisor, taking into account the
respective sizes of the accounts and the amount being purchased or sold. It is
recognized that in some cases this system could have a detrimental effect on the
price or value of the security insofar as the Fund is concerned. In other cases,
however, it is believed that the ability of the Fund to participate in volume
transactions may produce better executions for the Fund.
The Fund does not effect securities transactions through brokers in
accordance with any formula, nor does it effect securities transactions through
brokers solely for selling shares of the Fund, although the Fund may consider
the sale of shares as a factor in allocating brokerage. However, as stated
above, broker-dealers who execute brokerage transactions may effect purchase of
shares of the Fund for their customers.
For the fiscal year ended March 31, 1999, the Fund paid $3,870 in brokerage
commissions. Of such amount $282 was paid to broker-dealers who furnished
research, statistical or other services to the Advisor or Sub-Advisor.
For the fiscal year ended March 31, 1998, the Fund paid $3,421 in brokerage
commissions. Of such amount $751 was paid to brokers who furnished research,
statistical or other services to the Advisor or Sub-Advisor.
For the fiscal year ended March 31, 1997, the Fund paid $6,012 in brokerage
commissions.
PORTFOLIO TURNOVER
Although the Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they have been held when, in the opinion of the Advisor, investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in the Fund's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to higher transaction costs and may
result in a greater number of taxable transactions. See "Portfolio Transactions
and Brokerage." The Fund's portfolio turnover rate for the fiscal years ended
March 31, 1999 and 1998 was 16.36% and 27.21%, respectively.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The information provided below supplements the information contained in the
Fund's Prospectus regarding the purchase and redemption of Fund shares.
HOW TO BUY SHARES
The public offering price of Fund shares is the net asset value. Each Fund
receives the net asset value. Shares are purchased at the public offering price
next determined after the Transfer Agent receives your order in proper form as
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<PAGE>
discussed in the Fund's Prospectus. In most cases, in order to receive that
day's public offering price, the Transfer Agent must receive your order in
proper form before the close of regular trading on the New York Stock Exchange
("NYSE"), normally 4:00 p.m., Eastern time. If you buy shares through your
investment representative, the representative must receive your order before the
close of regular trading on the NYSE to receive that day's public offering
price.
The NYSE annually announces the days on which it will not be open for
trading. The most recent announcement indicates that it will not be open on the
following days: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, the NYSE may close on days not included in that
announcement.
The Trust reserves the right in its sole discretion (i) to suspend the
continued offering of the Fund's shares, (ii) to reject purchase orders in whole
or in part when in the judgment of the Advisor or the Distributor such rejection
is in the best interest of the Fund, and (iii) to reduce or waive the minimum
for initial and subsequent investments for certain fiduciary accounts or under
circumstances where certain economies can be achieved in sales of the Fund's
shares.
HOW TO SELL SHARES
You can sell your Fund shares any day the NYSE is open for regular trading,
either directly to the Fund or through your investment representative.
SELLING SHARES THROUGH YOUR INVESTMENT REPRESENTATIVE
Your investment representative must receive your request before the close
of regular trading on the NYSE to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge you for its services.
DELIVERY OF REDEMPTION PROCEEDS
Payments to shareholders for shares of the Fund redeemed directly from the
Fund will be made as promptly as possible but no later than seven days after
receipt by the Fund's Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Prospectus, except that the Fund
may suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the NYSE is restricted as determined by the SEC or
the NYSE is closed for other than weekends and holidays; (b) an emergency exists
as determined by the SEC making disposal of portfolio securities or valuation of
net assets of the Fund not reasonably practicable; or (c) for such other period
as the SEC may permit for the protection of the Fund's shareholders. Under
unusual circumstances, the Fund may suspend redemptions, or postpone payment for
more than seven days, but only as authorized by SEC rules.
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<PAGE>
The value of shares on redemption or repurchase may be more or less than
the investor's cost, depending upon the market value of the Fund's portfolio
securities at the time of redemption or repurchase.
TELEPHONE REDEMPTIONS
Shareholders must have selected telephone transactions privileges on the
Account Application when opening a Fund account. Upon receipt of any
instructions or inquiries by telephone from a shareholder or, if held in a joint
account, from either party, or from any person claiming to be the shareholder,
the Fund or its agent is authorized, without notifying the shareholder or joint
account parties, to carry out the instructions or to respond to the inquiries,
consistent with the service options chosen by the shareholder or joint
shareholders in his or their latest Account Application or other written request
for services, including purchasing or redeeming shares of the Fund and
depositing and withdrawing monies from the bank account specified in the Bank
Account Registration section of the shareholder's latest Account Application or
as otherwise properly specified to the Fund in writing.
The Transfer Agent will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine; if it fails to
employ reasonable procedures, the Fund and the Transfer Agent may be liable for
any losses due to unauthorized or fraudulent instructions. If these procedures
are followed, an investor agrees, however, that to the extent permitted by
applicable law, neither the Fund nor its agents will be liable for any loss,
liability, cost or expense arising out of any redemption request, including any
fraudulent or unauthorized request. For information, consult the Transfer Agent.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Transfer Agent by telephone. In this event,
you may wish to submit a written redemption request, as described in the
Prospectus, or contact your investment representative. The Telephone Redemption
Privilege may be modified or terminated without notice.
REDEMPTIONS-IN-KIND
The Trust has filed an election under SEC Rule 18f-1 committing to pay in
cash all redemptions by a shareholder of record up to amounts specified by the
rule (in excess of the lesser of (i) $250,000 or (ii) 1% of the Fund's assets).
The Fund has reserved the right to pay the redemption price of its shares in
excess of the amounts specified by the rule, either totally or partially, by a
distribution in kind of portfolio securities (instead of cash). The securities
so distributed would be valued at the same amount as that assigned to them in
calculating the net asset value for the shares being sold. If a shareholder
receives a distribution in kind, the shareholder could incur brokerage or other
charges in converting the securities to cash.
AUTOMATIC INVESTMENT PLAN
As discussed in the Prospectus, the Fund provides an Automatic Investment
Plan for the convenience of investors who wish to purchase shares of
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<PAGE>
the Fund on a regular basis. All record keeping and custodial costs of the
Automatic Investment Plan are paid by the Fund. The market value of the Fund's
shares is subject to fluctuation, so before undertaking any plan for systematic
investment, the investor should keep in mind that this plan does not assure a
profit nor protect against depreciation in declining markets.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of
shares of the Fund will be determined once daily as of the close of public
trading on the NYSE (normally 4:00 p.m., Eastern time) on each day that the NYSE
is open for trading. The Fund does not expect to determine the net asset value
of its shares on any day when the NYSE is not open for trading even if there is
sufficient trading in its portfolio securities on such days to materially affect
the net asset value per share. However, the net asset value of the Fund's shares
may be determined on days the NYSE is closed or at times other than 4:00 p.m. if
the Board of Trustees decides it is necessary.
In valuing the Fund's assets for calculating net asset value, readily
marketable portfolio securities listed on a national securities exchange or on
NASDAQ are valued at the last sale price on the business day as of which such
value is being determined. If there has been no sale on such exchange or on
NASDAQ on such day, the security is valued at the closing bid price on such day.
Readily marketable securities traded only in the over-the-counter market and not
on NASDAQ are valued at the current or last bid price. If no bid is quoted on
such day, the security is valued by such method as the Board of Trustees of the
Trust shall determine in good faith to reflect the security's fair value. All
other assets of the Fund are valued in such manner as the Board of Trustees in
good faith deems appropriate to reflect their fair value.
The net asset value per share of the Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets
which includes accrued but undistributed income; the resulting net assets are
divided by the number of shares of the Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in advertisements
and investor communications. Total return may be stated for any relevant period
as specified in the advertisement or communication. Any statements of total
return will be accompanied by information on the Fund's average annual
compounded rate of return for the most recent one, five and ten year periods, or
shorter periods from inception, through the most recent calendar quarter. The
Fund may also advertise aggregate and average total return information over
different periods of time.
The Fund's total return may be compared to relevant indices, including
Standard & Poor's 500 Composite Stock Index and indices published by Lipper
Analytical Services, Inc. From time to time, evaluations of the Fund's
performance by independent sources may also be used in advertisements and in
information furnished to present or prospective investors in the Fund.
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Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
period should not be considered as a representation of what an investment may
earn or what an investor's total return may be in any future period.
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.
Average annual total return for the Fund for the periods ending March 31,
1999 are as follows:
One Year 14.50%
Five Years 16.92%
Life of Fund* 16.22%
- ----------
* The Fund commenced operations on October 1, 1993.
GENERAL INFORMATION
Investors in the Fund will be informed of the Fund's progress through
periodic reports. Financial statements certified by independent public
accountants will be submitted to shareholders at least annually.
Firstar Institutional Custody Services, located at 425 Walnut St.,
Cincinnati, Ohio 45201 acts as Custodian of the securities and other assets of
the Fund. American Data Services, P.O. Box 5536, Hauppauge, NY 11788-0132 acts
as the Fund's transfer and shareholder service agent. The Custodian and Transfer
Agent do not participate in decisions relating to the purchase and sale of
securities by the Fund.
Tait, Weller & Baker, 8 Penn Center Plaza, Philadelphia, PA 19103, are
the independent auditors for the Fund.
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Paul, Hastings, Janofsky & Walker LLP, 345 California Street, 29th Floor,
San Francisco, California 94104, are legal counsel to the Fund.
The following persons are beneficial owners of more than 5% of the Fund's
outstanding voting securities as of July 17, 1999. An asterisk (*) denotes an
account affiliated with the Fund's investment advisor, officers or trustees:
*Star Bank Custodian for
Leslie E. Christian IRA
1624 7th Avenue West
Seattle, WA 98119 - 5.21%
Charles Schwab & Co., Inc.
Special Custody Account for Customers
101 Montgomery Street
San Francisco, CA 94104 - 21.99%
National Financial Services Corp.
211 Liberty Street
New York, NY 10281 - 6.42%
The Trust was organized as a Massachusetts business trust on February 17,
1987. The Agreement and Declaration of Trust permits the Board of Trustees to
issue an limited number of full and fractional shares of beneficial interest,
without par value, which may be issued in any number of series. The Board of
Trustees may from time to time issue other series, the assets and liabilities of
which will be separate and distinct from any other series.
Shares issued by the Fund have no preemptive, conversion, or subscription
rights. Shareholders have equal and exclusive rights as to dividends and
distributions as declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution. The Fund, as a separate series of the Trust, votes
separately on matters affecting only the Fund (e.g., approval of the Advisory
Agreement); all series of the Trust vote as a single class on matters affecting
all series jointly or the Trust as a whole (e.g., election or removal of
Trustees). Voting rights are not cumulative, so that the holders of more than
50% of the shares voting in any election of Trustees can, if they so choose,
elect all of the Trustees. While the Trust is not required and does not intend
to hold annual meetings of shareholders, such meetings may be called by the
Trustees in their discretion, or upon demand by the holders of 10% or more of
the outstanding shares of the Trust, for the purpose of electing or removing
Trustees.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Agreement and Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Agreement and Declaration of Trust also provides for indemnification and
reimbursement of expenses out of the Fund's assets for any shareholder held
personally liable for obligations of the Fund or Trust. The Agreement and
Declaration of Trust provides that the Trust shall, upon request, assume the
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defense of any claim made against any shareholder for any act or obligation of
the Fund or Trust and satisfy any judgment thereon. All such rights are limited
to the assets of the Fund. The Agreement and Declaration of Trust further
provides that the Trust may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, trustees, officers, employees and agents to cover
possible tort and other liabilities. Furthermore, the activities of the Trust as
an investment company would not likely give rise to liabilities in excess of the
Trust's total assets. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance exists and the Fund itself is unable to meet its
obligations.
FINANCIAL STATEMENTS
The annual report to shareholder for the Fund for the fiscal year ended
March 31, 1999 is a separate document supplied with this SAI and the financial
statements, accompanying notes and report of independent accountants appearing
therein are incorporated by reference in this SAI.
APPENDIX A
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations or
protective elements may be of greater amplitude or there may be other elements
present which make long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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Ba: Bonds which are rated Ba are judged to have speculative elements: their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
STANDARD & POOR'S RATINGS GROUP
AAA: Bonds rated AAA are highest grade debt obligations. This rating
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
The ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
*Ratings are generally given to securities at the time of issuance. While the
rating agencies may from time to time revise such ratings, they undertake no
obligation to do so.
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APPENDIX B
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
Prime-1: Issuers (or related supporting institutions) rated "Prime-1" have
a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2: Issuers (or related supporting institutions) rated "Prime-2" have
a strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
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